1. © Prentice Hall, 2005Business In Action 3eChapter 3 - 1 Competing in the Global Economy

2. © Prentice Hall, 2005Business In Action 3eChapter 3 - 2 Why Nations Trade ScarceRecoursesScarceRecoursesGlobalAmbitionsGlobalAmbitionsLimitedCapabilitiesLimitedCapabilitiesEconomies of Scale Economies

3. © Prentice Hall, 2005Business In Action 3eChapter 3 - 3 Theories of Production and Trading AbsoluteAdvantageAbsoluteAdvantageComparativeAdvantageComparativeAdvantage

4. © Prentice Hall, 2005Business In Action 3eChapter 3 - 4 Measuring International Trade Balance of Trade Balance SurplusSurplus DeficitDeficit Balance of Payments Balance Cash Inflow Cash Outflow

5. © Prentice Hall, 2005Business In Action 3eChapter 3 - 5 US Exports and Imports – Goods (in $ billions, 2002 data) Foods, Feeds and Beverages Industrial Supplies & Materials (including Petroleum) Machinery & Transport Equipment (not autos) Automotive Vehicles, Engines & Parts Consumer Goods (non-food) Other Goods Exports Imports 49,616 49,687 156,837 267,681 290,496 283,323 78,942 203,743 84,359 307,854 32,854 49,078

6. © Prentice Hall, 2005Business In Action 3eChapter 3 - 6 US Exports and Imports – Services (in $ billions, 2002 data) Travel and Passenger Fares Other Transport Royalties and License Fees Other Private Services Military, Defense Services Misc. Government Services Exports Imports 83,593 78,013 29,166 38,527 44,142 19,258 122,594 69,436 11,943 19,245 795 2,920

7. © Prentice Hall, 2005Business In Action 3eChapter 3 - 7 Trade Deficit on the Rise Trade deficit (in $ billions)

8. © Prentice Hall, 2005Business In Action 3eChapter 3 - 8 Global Trade Issues Free Trade Fair Trade Trade Restrictions

9. © Prentice Hall, 2005Business In Action 3eChapter 3 - 9 Protectionism and Trade Restrictions SanctionsSanctionsRestrictiveImportsRestrictiveImportsSubsidiesSubsidiesDumpingDumping TariffsTariffsQuotasQuotasEmbargoesEmbargoes

10. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 3 - 10 Restrictive import standards. Countries can assist their domestic producers by establishing restrictive import standards, such as requiring special licenses for doing certain kinds of business and then making it difficult for foreign companies to obtain such a license. For example, Chiquita claims that an eight-year European Union restriction on banana imports from Latin America cost the company $1.5 billion. Other countries restrict imports by requiring goods to pass special tests. Subsidies. Rather than restrict imports, some countries subsidize domestic producers so that their prices can compete favorably in the global marketplace. Airbus, originally an alliance of state companies from Germany, France, England, and Spain, was subsidized for years to help the company compete against rival Boeing. Now that Airbus is a strong competitor, the complex alliance has been sold to a joint venture composed of two private companies—the French-German-Spanish European Aeronautic Defense and Space Company and Britain's BAE Systems PLC. Dumping. The practice of selling large quantities of a product at a price lower than the cost of production or below what the company would charge in its home market is called dumping.

11. © Prentice Hall, 2005Business In Action 3eChapter 3 - 11 Promoting Free Trade World Trade Organization (WTO) World Trade Organization (WTO) International Monetary Fund (IMF) International Monetary Fund (IMF) The World Bank General Agreement on Tariffs and Trade (GATT) General Agreement on Tariffs and Trade (GATT) Asia Pacific Econ Cooperation Council (APECC) Asia Pacific Econ Cooperation Council (APECC)

12. © Prentice Hall, 2005Business In Action 3eChapter 3 - 12 Trading Blocs Advantages Help smaller countries Promote competition Widen markets Foster economic growth Disadvantages Economic isolation Trade restrictions Decline in world trade Fewer choices

13. © Prentice Hall, 2005Business In Action 3eChapter 3 - 13 North American Free Trade Agreement (NAFTA) United States Canada Mexico

14. © Prentice Hall, 2005Business In Action 3eChapter 3 - 14 The European Union MinimizingEstablishing Local Regulations Variations in Product Standards Trade Protectionism Global Product Standards Consumer Protection EnvironmentalProtection

15. © Prentice Hall, 2005Business In Action 3eChapter 3 - 15 The Economic and Monetary Union (EMU) EconomicImpactEconomicImpact CurrencyExchangeCurrencyExchange CentralizedBankingCentralizedBanking CurrencyUnificationCurrencyUnification The EURO

16. © Prentice Hall, 2005Business In Action 3eChapter 3 - 16 Foreign Exchange Rates and Currency Valuations Floating Rates Government Action Currency Devaluation Fixed Value System

17. © Prentice Hall, 2005Business In Action 3eChapter 3 - 17 The Global Business Environment Opportunities  Growth Potential  Increased Sales  Operating Efficiencies  New Technologies  More Consumer Choices Challenges  Laws and Customs  Consumer Preferences  Ethical Standards  Labor Skills  Politics and Economics

18. © Prentice Hall, 2005Business In Action 3eChapter 3 - 18 Cultural Differences In Global Business Consider the other person’s customsConsider the other person’s customs Deal with the individualDeal with the individual Clarify your intent and meaningClarify your intent and meaning Adapt your style to the other personAdapt your style to the other person Show respectShow respect

19. © Prentice Hall, 2005Business In Action 3eChapter 3 - 19 Legal Differences In Global Business Common Law Civil Law Theocratic Law

20. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 3 - 20 Legal Differences in Global Business Domestic Laws International Laws Country-Specific Laws

21. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 3 - 21 International Market-Entry Strategies Strategic Alliances and Joint Ventures Strategic Alliances and Joint Ventures Foreign Direct Investment Foreign Direct Investment International Franchising International Franchising International Licensing International Licensing Importing and Exporting Importing and Exporting Commitment, Risk, Control, Profit Potential LeastMost

22. © Prentice Hall, 2005Excellence in Business, Revised Edition Chapter 3 - 22 License agreements entitle one company to use some or all of another firm's intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) in return for a royalty payment. Under international franchising arrangement, a franchisor enters into an agreement whereby the franchisee obtains the rights to duplicate a specific product or service—perhaps a restaurant, photocopy shop, or video rental store—and the franchisor obtains a royalty fee in exchange. A strategic alliance is a long-term partnership between two or more companies to jointly develop, produce, or sell products in the global marketplace. To reach their individual but complementary goals, the companies typically share ideas, expertise, resources, technologies, investment costs, risks, management, and profits. A joint venture is a special type of strategic alliance in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents.

23. © Prentice Hall, 2005Business In Action 3eChapter 3 - 23 International Business Activity Importing and Exporting Licensing and Franchising Strategic Alliances and Joint Ventures Direct Foreign Investment OwnershipFinancialRisk LowLowLow LowLowLow ModerateModerateModerate HighHighHigh Common Forms Levels of Commitment

24. © Prentice Hall, 2005Business In Action 3eChapter 3 - 24 Strategic Approaches to International Markets Products Support Promotion Pricing Staffing

25. © Prentice Hall, 2005Business In Action 3eChapter 3 - 25 Impact of Terrorism on Global Business GovernmentExpendituresBusinessExpenditures BankingTransportation